Huffington's Heist

On Monday, AOL Inc. announced that it will buy The Huffington Post for $315 million. Paul Farhi at the Washington Post writes:

In effect, [Arianna] Huffington is taking over AOL.

A Reuters story by Anthony Boadle and Jennifer Saba properly questions the deal's wisdom:

The move ... comes at a hefty premium. AOL is estimated to be paying 32 times earnings before interest, taxes, depreciation and amortization for The Huffington Post, said Benchmark Co. analyst Clayton Moran. Similar content deals, such as Hellman & Friedman's acquisition of Internet Brands in September 2010, typically go for eight to 12 times earnings, said Moran.

Based on conventional metrics, AOL is overpaying by roughly $200 million. Why?

Perhaps it's because this deal looks like a bargain compared to other clunkers in AOL's past. In 2000, AOL bought Time Warner for $162 billion. Today, after a near-total unwinding of that deal and more business missteps than can be counted, the company is worth $2.34 billion. Oops, make that $2.26 billion -- the stock fell 3.4% on Monday on news of the HuffPo acquisition. In June of last year, AOL sold the social network Bebo, an $850 million 2008 acquisition, for the princely sum of $10 million. These guys still know how to pick 'em, don't they?

Matt Drudge is making an issue of the fact that HuffPo's backers "had sought an exit." Well, of course they did. That's what venture investors do, either by taking a company public or by selling out to a larger firm. There's nothing unusual in that. What is unusual is that AOL, which has been telling the public that it has "built a news operation that relies far less on wire reports and focuses instead on original reporting, analysis and commentary," would want to associate itself with:

•     An entity which, along with its principals, has been sued by a pair of former Democratic Party consultants who claim that Huffington and business partner Ken Lerer "stole their business idea." It would be easy to dismiss the legal action as a money grab, but progressive co-plaintiffs Peter Daou and James Boyce are not minor actors, and at least on the surface their arguments seem credible.

•     A CEO who "has been accused of lifting portions of a number of her books from other authors, and in one case had to dole out a 5-figure settlement to put plagiarism charges to rest."

•     Someone who appears to have started up her enterprise on false pretenses. Envirozealot Laurie David, a good friend of Arianna, has said that before the business began, "everybody was talking about the antidote to the Drudge Report, and from the very beginning she was thinking of that and so much more." That's interesting, because "in her initial blanket e-mail to recruit bloggers to the site, she promised it 'won't be left wing or right wing; indeed, it will punch holes in that very stale way of looking at the world.'" Late Monday evening, HuffPo's home page featured very, very stale offerings from the left-wing likes of American Prospect co-founder Robert Kuttner, Co-Director of the Center for Economic and Policy Research Dean Baker, Democratic Congressmen Dennis Kucinich and Mike Honda, the aforementioned Ms. David, Brady Campaign President Paul Helmke, and "special admirer" of Bill Clinton Nina Burleigh. The only item I located coming from a clearly sensible conservative perspective was one co-authored by Reason's Nick Gillespie and Cato's Veronique de Rugy.

•     An astroturfing activist chief executive who on impulse spent an estimated $250,000 so that 100 buses full of New Yorkers could attend Jon Stewart's laughably misnamed "Rally to Restore Sanity" in Washington last October.